Why are the Big Four suddenly raising their interest rates?
The last week has seen some of the biggest movements in interest rates in months, with both CBA, Westpac and now ANZ making significant alterations, both up and down.
CBA made the first big move, slashing 40 points off their basic variable rate, whilst simultaneously raising all their major fixed rates. Most banks raising their 3–5-year fixed rates. The Big Four sneezes, the rest of the industry gets a cold, so as brokers we need to be across the developments, understand why they are happening and keeping customers up to date. The Big Four banks now only have 1 product in their mix under the 2% rate mix.
The biggest impact on the 3-year fixed has risen a massive 30 points, while the 4- and 5- year fixed have gone up 20 basis points.
The Reserve Bank of Australia has said that it will not change the cash rate until 2024 at the earliest, essentially allowing inflation to happen to the point at which they need to slow it. So why are the big four suddenly increasing rates outside of any RBA cycle?
It is what they are thinking will likely happen in the medium term to the cost of funds. If they’re already price rising, then they believe the cost of funds will go up, which they will likely pass onto consumers.
So, with inflationary pressures and if the RBA turns off the term funding facility, the banks still need to securitise billions of dollars through the bond market and therefore the cost of the money to lend has gone up and so it is passed to consumers.
Having said that – you should only fix your loans in line with any plans you have. If you sell or want to break a fixed rate loan it can be expensive. And let’s get some perspective on the current rates – they are still historically low!
It is always good to review your existing loans and create a plan for the short to medium term. Contact me to see what your options are.